So you want to invest but you don’t have a lot of money? A common misconception is that investing in stocks is for rich people only. Today we will go through how much money do you need to start investing in the stock market.
Table Of Contents
- Short Answer
- Misconceptions
- How Can You Start Investing With Little Money?
- But You Need to Be Rich to Make Money in the Stock Market Right?
- Example
- More Money vs. Patience in The Stock Market
- Conclusion
Short Answer
The fact is that today you can start investing with as little as £1. This is made possible by the new commission-free brokers, which makes investing accessible for everyone. The only thing that you need to have is a debit card in order to create an account.
Misconceptions
According to a survey from 2018 46% of millennials think that you need at least $1000 in order to start investing. 17% think that you need $10,000 or more in order to get involved with stocks.
This is because in the past that has been indeed, true. Here is an interesting History Of The Stock Trading that shows the change of the brokerage industry during the years. Back in the 20th century people had to go through complicated procedures in order to buy a share in a company they like. It has also been much harder for people to find information.
We are now living in a time where we have all the information we need and commission-free platforms such as Freetrade in the UK or M1 Finance in the US. That means that you don’t need to pay any fees when you are buying or selling a stock.
How Can You Start Investing With Little Money?
Starting in the Stock Market has never been easier. You need to have internet and a debit card, that’s it. All you need to do is go to a commission-free broker, make an account and buy a share that you like. The whole process takes a couple of minutes. It is in no way harder than registering for Netflix or Amazon for example.
Ok, now, the fact is that not many stocks are trading for a dollar or less so you might technically need like $10-$20 to buy one, but hope you get my point. That is of course unless you register for a fractional share provider like M1 Finance. Freetrade is also going to offer fractional shares within a couple weeks time. Fractionals give you the chance to buy a fraction of any share you like for as little money as you have.
For example you can buy part of a share of Amazon (currently worth around $2000) for just a dollar or less. Those brokers are not that popular yet, but it is a matter of time before all the stock brokers start offering that.
Hope you now understand how easy it is to start investing in the stock market. You have all the info that you need on your fingertips .
But You Need to Be Rich to Make Money in the Stock Market Right?
This is another misconception that you need to have a lot of money in order for investing to be worth it. Yes, having more money certainly helps, but that is not the key in investing. Every great investor has started with a couple of dollars, no exceptions.
For example let’s take a look at Warren Buffett. He is one of the richest people in the world and made his fortunes by investing in the stock market. He surely had a fortune before he start right? Not really. Let’s take a look at his net worth by years.
As you can see he had $5,000 when he was 14. He has made those money from different little business ventures when he’s been little. He saved those money all by himself and then started investing them in the stock market. As you can see the results are staggering. He is worth more than $80 bln as of 2019.
Of course it is extremely hard for someone else to achieve the same results as he did. He used complicated techniques and is very gifted in analysing numbers, but you can see that this is possible.
He has achieved over 20% annual returns over his career and probably no one else will be able to do this again, but you can see that even those billionaire investors have started from somewhere.
But let’s not look at him, let’s see if you are a normal person with everyday job and a minimum knowledge about the stock market. Let’s see what we can do with some savings, a good Strategy and patience.
Example
Let’s say you work a normal 9-5 job, the markets are not your thing and you just don’t have enough time or energy to look through earnings reports and balance sheets. What you can do is just pick a couple of ETFs and keep contributing every month. If you don’t know what that is I have made a little ETF Guide.
So you choose an ETF that tracks the S&P500. It has historically returned about 10% and the only thing you need to do is invest in it. You don’t need to read any financial statements and you don’t need to know what is EBITDA.
So for the example let’s say that there is a girl called Jackie. She decides to invest £300 every month in the stock market. She doesn’t know much about stocks and doesn’t have much time to go through earnings reports. That is why she picks a simple S&P500 ETF. She sticks to her plan and 40 years later she is a millionaire, adjusted for inflation.
To be precise she’s got £1,061,000. And this example is with only £300 every month. For example if you earn more money and put £1,000 a month you will end up with £4,7 mln after the same period of time.
More Money vs. Patience in The Stock Market
Now let’s take a look at another example. Example A is Jackie, which is following her strategy at investing $300 a month each and every month. She doesn’t have much money to start with, but she is very patient and methodical.
Example B is Chan, he’s got $20,000 to begin with, but he stops investing as soon as he puts the sum into his account. They both hold the same stocks and get the same return of 8% adjusted to inflation.
Here is a graph of both of their performances:
The end result is as follows:
- Jackie – $1,061,565
- Chan – $434,490
As you can see at first Chan’s got the bigger portfolio, but at the end Jackie ends up with more than double Chan’s portfolio. It doesn’t matter that Jackie only had $300 to begin with, her strategy brought her all those returns.
I hope you now understand that being patient is more important in the long-term than starting with a lot of money. Now, don’t get me wrong, you should absolutely aim to increase your income, but being methodical is the most important thing in investing.
And if you don’t currently have spare $300 a month that doesn’t matter. You can do the same thing with any amount of money, even if it is just $10. In fact it is really hard to save the exact same amount every month.
For example one month you will work overtime and save $500, the next one you will get sick and save only $100, it’s completely normal.
The important thing is to start and to build the habbit of deploying your extra money into your portfolio.
Conclusion
Hope you now understand that there is no such thing as ”minimum investment” in the stock market. You can start with a dollar, you can start with a thousand dollars, you can start with a million, the results performance-wise are going to be the same.
Getting into the stock market has never been easier and you can start today, even with just the spare money in your wallet. What’s important is that you choose a strategy and stick to it month after month. If you do that you will inevitably see the results of it.
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